Egypt studies international bond issue
Cairo, June 5, 2014
Egypt's finance ministry is studying the possibility of issuing its first international bond since 2010, two officials told Reuters, as investor confidence in the country gradually returns after the turmoil which followed the 2011 revolution.
A government official with knowledge of the matter said Egypt had discussed with banks the possibility of an international eurobond issue of between $750 million and $1 billion, "whenever the time and need is appropriate to cover the budget gap".
A second official confirmed this, adding that the bond issue would mainly be aimed at Gulf Arab investors. The officials, who declined to be named because of the sensitivity of the issue, did not provide further details.
Because of its political and economic instability, Egypt has been frozen out of the international debt market since president Hosni Mubarak was ousted in early 2011. But confidence is slowly reviving on the back of billions of dollars of aid provided to Cairo by allied Gulf states.
Former army chief Abdel Fattah Al-Sisi, who deposed Egypt's Islamist President Mohamed Mursi last year, won more than 95 per cent of the vote in presidential elections last week. He enjoys the backing of Saudi Arabia, Kuwait and the United Arab Emirates.
The yield on Egypt's $1 billion sovereign bond maturing in 2020 tumbled to 4.73 per cent this week, its lowest level since December 2010, from a peak of 11.07 per cent in June 2013. Five-year credit default swaps (CDS) , used to insure against the risk of an Egyptian sovereign debt default, are at their lowest level since mid-2011.
Even with the Gulf aid, the government remains under heavy pressure to raise funds as it runs huge budget deficits. State spending is projected to exceed revenues by 290 billion Egyptian pounds ($40 billion) in the year to June 30, 2015, according to an official budget draft.
While many Western investors remain wary of Egypt, Gulf governments are encouraging their state-backed companies and financial institutions to invest there, so an Egyptian bond issue might attract substantial demand from them.
A Fitch ratings analyst said on Thursday that improvements in the political outlook suggest Egypt may be at the bottom of its ratings cycle. Fitch upgraded Egypt's outlook to stable on its B-minus rating in January.
Egypt is due for a ratings review on June 27.
"They could wait for an upgrade in ratings and for CDS to fall further. If I was working at the finance ministry I wouldn't announce pricing at this point in order to get the best pricing from the market," said one Cairo-based fixed-income trader.
"Especially after Fitch announced there is a low. That means there is an upside...It's the right time to announce it but there shouldn't be expectations that there will be immediate action." - Reuters
